Explainer-How Singapore's unique monetary policy works

Core Viewpoint - Singapore's central bank, the Monetary Authority of Singapore (MAS), manages monetary policy by adjusting the exchange rate of the Singapore dollar instead of changing domestic interest rates, which is a unique approach compared to many other economies [1]. Group 1: Economic Context - Singapore is a small, trade-reliant economy where gross exports and imports exceed three times its GDP, indicating a significant reliance on international trade [2]. - Nearly 40% of every Singapore dollar spent domestically is on imports, highlighting the importance of the exchange rate in influencing inflation more than domestic interest rates [2]. Group 2: S$NEER Overview - The S$NEER is an index that reflects the trade-weighted exchange rate of the Singapore dollar against the currencies of its major trading partners, which is crucial for determining general price levels in Singapore [4]. - The MAS allows the S$NEER to fluctuate within a policy band, which is not publicly disclosed, and intervenes by buying or selling Singapore dollars if the rate moves outside this band [5]. Group 3: Policy Band Mechanics - The MAS reviews the parameters of the policy band at least twice a year, with additional reviews possible in response to immediate economic conditions, such as high inflation [6]. - Starting in 2024, the MAS will announce monetary policy quarterly, enabling more timely assessments of the economic outlook [6]. - The three adjustable parameters of the policy band are the slope, level, and width, which influence the pace and extent of the Singapore dollar's appreciation or depreciation [7].